Ethereum forming a double top? ETH price loses 12.5% amid Evergrande contagion fears

The pattern's neckline support near $1,984 emerges as Ether's downside target.

Prices of Ethereum's native asset, Ether (ETH), slumped on Sept. 20 amid a broad sell-off in the cryptocurrency market, led by worries about a potential housing bubble crisis brewing in China.

The ETH/USD exchange rate dropped as much as 12.52% to $2,911 on the Coinbase exchange, hitting its lowest levels since the beginning of August. Elsewhere in the crypto market, Bitcoin (BTC), Binance Coin (BNB), Cardano (ADA), Solana (SOL) and other top tokens plunged in tandem.

The performance of top 10 crypto assets in the past 24 hours. Source: Messari

The drop imitated the mood in the broader market as United States equities plunged following a day of red in both the Asia-Pacific and European indexes. On the other hand, the U.S. dollar and government bonds surged on haven-buying.

At the core of Monday's sell-off was a liquidity crisis at Chinese property developer Evergrande. The world’s most indebted property developer faces obligations of more than $300 billion to creditors. That also includes a critical interest payment deadline on its offshore bonds, arriving on Sept. 23.

DW noted that if Evergrande topples, it could bring many banks down with it, same as Lehman Brothers did during 2008's housing bubble crisis in the United States.

Although Ether does not trade in sync with global markets, its 30-day correlation with Bitcoin — the leading digital asset exposed to macroeconomic fundamentals — sits near 0.85. As a result, the altcoin appeared to have faced an indirect consequence of China's looming housing crisis.

Bearish pattern triggered

The latest bout of selling in the Ether market also triggered a classic bearish pattern, which has a 75% accuracy when it comes to hitting its downside targets.

Dubbed a “double top,” the pattern develops after the price rallies strongly, pulls back, rises again toward the previous peak and corrects all over again — all while standing atop the so-called neckline support. Ultimately, the price falls below the neckline and targets levels located as deep as the distance between the double top's peak and the neckline.

Ether appears to be halfway through while painting a double top pattern. The cryptocurrency's chart below shows that it topped near $4,385 on May 12, fell toward the neckline support of $1,984 and rose back to another sessional peak of $4,030 on Sept. 3.

ETH/USD weekly price chart. Source: TradingView

If the double top pattern flourishes, ETH/USD rates could extend their ongoing sell-off toward $1,984 for a potential breakdown move afterward. Nonetheless, it does not look feasible for ETH/USD to drop aggressively below the $1,984-neckline.

The level is also near Ether's 50-week exponential moving average (EMA) (the velvet wave) currently at $2,118, offering another support layer to safeguard Ether's bullish bias. Earlier, the wave acted as an entrylevel for bulls following sharper ETH/USD pullbacks.

Related: Ethereum killers or just pretenders? But Ether remains king for now

At the same time, on a daily timeframe, the next support line for Ether appears near its 200-day EMA (the orange wave) at $2,536. Thus, a sharp pullback from the said level could negate the double top setup. 

ETH/USD daily price chart featuring 200-day EMA support. Source: TradingView

Fundamentals

Ether continues to eye adoption against Ethereum's role in backing the booming decentralized finance (DeFi) and nonfungible token (NFT) industry. In the recent SALT conference, Cathie Wood, CEO of Ark Invest, also said that investors should allocate at least 40% of their crypto portfolios to Ether.

Ark Investment CEO @CathieDWood's confidence in Ethereum and Bitcoin is growing.

Projecting a 10x growth rate over the next five years, the firm’s crypto exposure is likely to be split: 60% BTC and 40% ETH. https://t.co/VQCZhVCD3m

— Cointelegraph (@Cointelegraph) September 15, 2021

Excerpts from Wood's statement include:

“I’m fascinated with what’s going on in DeFi, which is collapsing the cost of the infrastructure for financial services in a way that I know that the traditional financial industry does not appreciate right now.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.